The direction of commodities stocks is clear per a recent article in the Wall Street Journal. Investors seeking to follow the experts should place their capital in three areas: Mined resources, agriculture and oil.
The mining firms that produce the basic materials, including lithium, zinc, steel, gold and other precious metals, are in position to rise. China’s economy is slumping but a rebound there will send prices higher. Electric vehicles are facing similar issues.
Oil prices are trending up and the situation in the Middle East could send prices upward. Agricultural prices are lower in 2023 but further disruptions in Ukraine could catalyze a reversion to 2022 levels. Additionally, El Niño weather patterns threaten production in Brazil.
Deere (DE)
Deere (NYSE:DE) won’t release earnings again until Nov. 22, so we’ll start by reviewing its most recent earnings from August.
For those who’ve been following the equipment manufacturer over the last few years, it was redundant: Deere performed exceedingly well. That allowed firm management to raise guidance for the fiscal year which will end on Nov. 22 when it reports Q4 results.
The reason to get in now is straightforward: When Deere released earnings in August they were received with trepidation despite the strong performance. Fears about peak equipment sales were to blame.
However, with earnings estimates having risen over the quarter there’s reason to assume those fears will go unfounded. Further, there are multiple variables that could swing in favor of agriculture due to unstable geopolitics at present.
Deere has shown that it has what it takes to produce better than expected results quarter after quarter over the last few years. Bears will always discredit those notions, but bulls seem to win more often on Deere and its shares.
BASF (BASFY)
BASF (OTCMKTS:BASFY) is a massive German firm that is primarily known as an agriculture company. Its Chemicals, Industrial Solutions, Nutrition, and Agricultural Solutions certainly contribute to that perception.
And those segments account for the bulk of its revenues. So, the perception is deserved. However, it operates in other areas and shouldn’t be considered a pure play agricultural stock.
Regardless, BASF is highly exposed to the agricultural sector and its scale means that when the agriculture sector booms, it does too.
That truth is well reflected in its earnings statements that include figures from both 2022 and 2023. Volumes declined by 9.4% in Q3 on prices that fell by 14.4%. The result was that BASF’s revenues fell by €6.211 billion to €15.735 billion.
The company took advantage of 2022’s windfalls and used the subsequent decline in 2023 to buy Solvay Agro for €1.3 billion. Meanwhile, BASF continues to invest in green energy and greener production broadly. It’s a well-diversified firm that can win in many ways, particularly when agricultural commodities rise.
Corteva (CTVA)
Corteva (NYSE:CTVA) is a pure play agriculture stock. It’s interesting for many reasons. One of those reasons is it’s exposed to the El Niño weather patterns that threaten production in Brazil that I mentioned in the introduction.
The company released earnings on Nov. 8 that included downward revisions to its Brazil operations. Normally, that would be a bad piece of news and while CTVA shares did fall, the firm’s guidance remained unchanged for the year.
The worst-case scenario in Brazil is baked into current prices while Corteva remains positive overall. The company continues to see strong demand for grain and oilseeds and reports that farmer balance sheets continue to be strong.
CTVA shares are trading below analysts’ low target price currently but the reaction to Q3 earnings was overdone. Get in now and secure low price shares, a moderate dividend, and a lot of upside potential.
Newmont (NEM)
Newmont (NYSE:NEM) is one of the largest and best-known mining stocks available. In fact, it’s the largest gold mining firm on earth and produced more gold than any other mining firm during the year.
As the Wall Street Journal article mentioned, precious metals mining commodities firms are the ones to watch for the remainder of 2023.
As mentioned, Newmont is the biggest gold mining firm globally. However, Newmont just got bigger. The company just closed its pending acquisition of Newcrest, a major Australian Gold producer. In other words, Newmont’s already strong economies of scale are getting stronger.
During the third quarter, Newmont’s operational performance remained strong. Essentially, Newmont continues to run its already strong operations. The cost of the gold that it sold exceeded the costs of production of said gold.
Newmont will remain on the watch lists of many investors, particularly those who remain deeply interested in the performance of gold. It remains a strong choice for all investors, not just gold bugs.
Wheaton Precious Metals (WPM)
Wheaton Precious Metals (NYSE:WPM) is another precious metals Mining stock that investors should keep a close eye on. Like Newmont, Wheaton Precious Metals is primarily a gold mining firm but it also produces other precious metals.
That said, Wheaton Precious Metals differs from Newmont in how it conducts business. Wheaton Precious Metals is what’s known as a streaming firm. While Newmont operates mines, Wheaton precious metals instead purchases production from various mines around the world.
It currently owns the rights to 19 streams, 21 operating mines, and 13 development stage projects. So, when prices rise Wheaton precious metals tends to do very well because of the contract pricing upon which it operates. Conversely, when prices weaken, Wheaton Precious Metals tends to do worse for the same reason.
Right now, with precious metals prices appearing to be trending upward Wheaton Precious Metals remains in position to create substantial returns for investors. For investors who are considering other Commodities like lithium, a firm like Albemarle (NYSE:ALB) might make a lot more sense at the moment. In fact, there’s a strong case to be made that both gold and lithium have strong catalysts in their favor at the moment.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) Is my first recommendation for energy stocks to consider for the remainder of 2023. The reason that Devon Energy makes sense at the moment is that it offers strong upside potential.
The reason that Devon Energy has such strong upside potential lies in the composition of its dividend. Devon energy offers what is called a Fixed plus variable dividend. What that means is that Devon Energy pays a base dividend which is complemented by an additional dividend during strong periods.
In other words, the current environment around energy prices should prove beneficial for investors in its stock. Currently, Devon Energy’s dividend yields 7.8%. That’s already a relatively high yield for investors with the potential to be much higher as oil prices rise.
Investors who purchase DVN shares are essentially making a bet that they believe oil prices will continue to rise. Devon energy isn’t the only stock that offers a fixed plus variable dividend. investors who are interested in other firms that also do so could consider Diamondback Energy (NASDAQ:FANG) for example.
Chevron (CVX)
I’ve recently recommended Chevron (NYSE:CVX) stock many times. Unfortunately, it also experienced a sell-off in the weeks following those recommendations. Oh well, that’s what happens in investing: sometimes you lose and sometimes you win.
That said, Chevron does really look to be in strong position at the moment. First, Chevron stock is clearly very cheap. The markets didn’t respond particularly well to the news that Chevron was going to purchase Hess (NYSE:HES).
However, it remains far too early to see how that will play out. Ultimately, if Chevron is right, Hess will end up complimenting its business overall.
Further, there’s a strong case to be made that fossil fuel demand is nowhere near its peak. Chevron will remain one of the best stocks to be invested in for exactly that reason. The company remains highly focused on exploration and production and distribution of products like gasoline.
I don’t doubt that electric vehicles will continue to be a disruptive force to demand for internal combustion engine vehicles. However, I believe that the negative effects on the fossil fuel industry have been drastically overestimated. That means that it makes sense to invest in EV firms and energy firms at the same time. Both can coexist profitably for a long time.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
